MOSCOW, September 7 (RIA Novosti) Fradkov Cabinet in for major reshuffle/ Chechnya asks Russia for ultra-liberal economic regime/ Alrosa, De Beers circumvent EC diamond-purchase ban/ Peugeot Citroen plans auto plant in Russia/ Three PSA projects yield $686 million in budget revenues

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Novye Izvestia

Fradkov Cabinet in for major reshuffle

Anonymous sources among top officials of the State Duma, the lower house of parliament, said Prime Minister Mikhail Fradkov and several ministers may exit the government in October.

Experts said First Deputy Prime Minister Mikhail Medvedev was the most likely candidate to replace Fradkov. If appointed, Medvedev would come closer to becoming Vladimir Putin's successor, political scientists told the paper.

Independent Duma deputy Vladimir Ryzhkov said presidential elections were still a long way off, and it would be better to conduct a reshuffle a year or six months - rather than 18 months - ahead of elections.

Alexei Mukhin, general director of the independent Center for Political Information, said everyone for some reason thinks Putin has chosen the right course. But this is not true because prime ministers are usually sacked in the event of problems. Fradkov has to shoulder the responsibility for the government's failure.

First Deputy State Duma Speaker Oleg Morozov, member of the pro-Kremlin United Russia faction, said the president had the right to dismiss the government. But he said he saw no political and economic reasons for any major reshuffle, acknowledged individuals may be replaced.

Viktor Ilyukhin, deputy chairman of the Duma's security committee and member of the Russian Communist Party, said parliamentary elections would be held in a year. Fradkov will be blamed for all the setbacks and he will be replaced with Medvedev, who is an expert on everything, the economy and gynaecology included.

Gennady Gudkov, member of the Duma's security committee [United Russia faction], said any governor, Duma deputy, member of the Federation Council, the upper parliament house, or any minister could replace Fradkov. Russia's prime ministers have become technocrats and it is unimportant who takes over.

Sergei Markov, director of the Moscow-based Institute for Political Studies, said Fradkov's appointment showed Putin has an unlimited number of candidates.

Kommersant

Chechnya asks Russia for ultra-liberal economic regime

Ramzan Kadyrov, Chechnya's prime minister, has taken the last step to ensure autonomy for the republic within Russia. The regional legislature, fully under the premier's control, has submitted to the State Duma a bill that would give Chechnya some powers to set up an ultra-liberal economic regime with a view to restoring the region's economy.

The authors of the bill understand the extent to which the draft clashes with standards of political decency in Russia's parliament. "Perhaps some of our suggestions, for example, on taxation and customs breaks, and greater rights granted to the republic's authorities to control natural resources may appear too bold for Russian lawmakers," Abu-Rashid Zakayev, head of the budget committee of Chechnya's lower chamber of parliament, said on Wednesday. "But we are sure that investment can be attracted to allow business to flourish only in these conditions. This will cut federal budget spending on the republic." Zakayev said 65% of budget revenues were taxes on individuals.

Even liberal-minded politicians were wary of the bill. Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, said he was flatly against the law. "Non-state investments are always welcome, but it is wrong to stimulate them by exclusive methods. Under the bill the republic would assume an autonomous status and drop out of the existing system of inter-budget relations," he said.

This time Kadyrov appears to have asked too much from Russia. At least the Duma has never received such liberal draft laws. Only very strong political pressure from the Kremlin would see the bill enacted into law, but there is no sign yet that Vladimir Putin supports it.

Conceivably the draft is not intended for debate, but is a diplomatic probe. After failing to secure a power-delimitation treaty between the Russian Federation and Chechnya, Kadyrov is demonstrating that his real wishes, for example, the return of Grozneftegaz from Rosneft to the Chechen government, are more modest than the bill on a special status for business in Chechnya.

Gazeta.ru

Alrosa, De Beers circumvent EC diamond-purchase ban

Diamond market leaders Russia's Alrosa and South Africa's De Beers have found a way to circumvent a European Commission decision forbidding De Beers to buy diamonds from Alrosa from 2009. Under a memorandum signed Wednesday in Cape Town, both companies can establish diamond prospecting and production joint ventures worldwide.

Alrosa, which controls 25% of the global diamond market, posted a profit of 4.8 billion rubles (about $180 million) in January-June 2006. De Beers, which produces 60% of the world's diamonds, made a $554-million profit last year and by early 2005 was buying 19% of its diamonds from Alrosa.

The EU hopes that Alrosa sales to De Beers will total $500 million in 2007 and $400 million in 2008. Alrosa is contesting this decision in the European Court of First Instance, accusing the EC of violating the fundamental freedom-of-contracts principle. Both companies will make up for the losses incurred by EC intervention and could possibly earn more if they work together under the memorandum.

Analysts praised the memorandum. This is a long-term agreement, said Alexei Pavlov, chief analyst with VIKA brokerage. "Although supply exceeds demand by 10% on the global diamond market, the resource base must be gradually renewed," Pavlov told the paper.

Igor Vasilyev of Financial Bridge brokerage said De Beers should sell new diamonds because it has vast experience in this area. Production-sharing agreements and diamond sales through two chains are also possible, said Vasilyev. "Another good point is that both companies will take on board each other's experience and share inevitable risks while developing new deposits," Vasilyev told the paper.

Biznes

Peugeot Citroen plans auto plant in Russia

Representatives of the Economic Development and Trade Ministry have unveiled the details of a PSA Peugeot Citroen project to set up a car plant in Russia. The enterprise is most likely to be located in Nizhny Novgorod and to produce up to 25,000 vehicles a year, equal to the current sales of both French makes in Russia. But $50 million in investment indicates PSA has opted for semi-knockdown assembly.

"PSA is likely to get some local breaks," said Finam brokerage analyst Natalia Kocheshkova. "The region is technically and technologically well developed, and is conveniently linked to the rest of Russia," said Dmitry Baranov, head of analysis at Prado Banker & Consultant.

Nizhny Novgorod, apart from the existing GAZ automotive plant, is now also developing production of vehicle components. It was announced on Wednesday that France-based Faurecia and Nizhny Novgorod Tekhnoplast were setting up a joint venture to produce bumpers for Renault plants in Moscow and Colombia.

But a source in the automotive industry said he did not think PSA would assemble on the GAZ car-plant site. "Why should GAZ cultivate a competitor?" he said. In addition, representatives of the GAZ group said earlier they were interested in technological cooperation with foreign companies, but not semi-knockdown assembly.

PSA and the ministry may sign a contract in late September or in early October, with production set to begin in 2008-2009. PSA plans to minimize investments and will try to find a production set-up capable of functioning without much revamping or retooling, Baranov said. The market source added that only modular assembly could be organized with such a low level of investment.

"Perhaps PSA wants to take a close look at the market and environment," Baranov said. He said he thought PSA was interested in assembling light commercial vehicles of the Citroen Berlingo/Peugeot Partner type in Russia. Kocheshkova said Russia might assemble vehicles developed for China.

Vedomosti

Three PSA projects yield $686 million in budget revenues

Participants in three projects on production sharing agreements operating in Russia since the early 1990s have spent some $18 billion on oil and gas production. But the government has received just $686 million.

A 2005 report from the interdepartmental commission on production sharing agreements reads that Sakhalin-II, run by Sakhalin Energy, is the most expensive project. In all, $11.8 billion has been spent since it was launched. ExxonMobil's Sakhalin-I has consumed $5.6 billion and the Kharyaga oil field operated by France's Total $781.8 million. Each of the three projects has exceeded its budget. In 2005 alone, $2.27 billion was spent on Sakhalin-I, which exceeded estimates by 24%. The budget overrun on Sakhalin-II was $4.05 billion, or 61%, and on Kharyaga $93.45 million, or 26%.

Mikhail Subbotin, head of the SRP-Expertise center, said indirect revenues should be taken into account when calculating the government's real earnings from PSAs. Operators hired Russian subcontractors, who in turn paid taxes to the budget. Sakhalin Energy Vice President Igor Ignatyev said the operators of the two Sakhalin projects had struck some $8 billion worth of contracts with Russian companies since their launch. In 2005 alone, Sakhalin Energy paid Russian subcontractors $931.8 million, which accounts for 87% of the total number of contracts.

Ten to twelve years ago, when the first PSAs were launched, this was the only possible way of exploring huge deposits because Russian companies could not invest billions of dollars, said Maxim Shein, head of BrokerCreditService's analysis department. With high oil prices, PSAs are no longer necessary, said Denis Borisov, an analyst with the Solid brokerage. He has calculated that the government's revenues from Sakhalin-I under a 50-50 PSA come to about $37.8 per barrel and $45.6 under current tax regulations if the oil price is $65 per barrel. Borisov said new PSAs should be concluded for the largest deposits only, such as Shtokman, Prirazlomnoye and Tsentralnoye.